BSP needs to improve credit surety program

The central bank’s Credit Surety Fund (CSF) program faces several limitations and challenges that should be addressed to extend its reach to the majority of unbankable micro, small and medium enterprises (MSMEs), the Asian Development Bank Institute (ADBI) said in a report.

“The CSF has been performing well and according to expectations. Targets used as performance standards have been achieved. The CSF is financially sound with related financial risks maintained at minimum and tolerable levels,” the ADB think tank stated in a recently published working paper.

However, the Institute noted the program faces limited funding, delayed processing of loan applications and lack of credit information.

“Because of these factors, the CSF has not been able to extend its reach to the great majority of unbankable MSMEs,” it pointed out.

The CSF is a credit guarantee program initiated by the Bangko Sentral ng Pilipinas (BSP) to help small industries gain access to credit. It improves the bankability and creditworthiness of capital-short enterprises, including cooperatives, which have difficulty in obtaining bank loans due to lack of collateral, credit information, and an established credit track record.

The program is financed by the pooled contributions of various stakeholders, including cooperatives, local government units, and government financial institutions such as Land Bank of the Philippines, Development Bank of the Philippines, and Industrial Guarantee and Loan Fund.

The pool of funds serves as security for loans to enterprises from banks in lieu of conventional collateral.

Since 2007, the paper noted, the CSF has been growing rapidly with 37 individual CSFs in operation at the end of 2014. Funding contributions have reached $10.5 million and total accumulated approved loans have reached $33.8 million. Of total approvals, $27.8 million has been released to 14,434 MSMEs.

Limitations
The paper stressed that current borrowers constitute a small portion of the nearly 941,000 MSMEs in the Philippines and one may draw the conclusion that the CSF is underutilized and ineffective in reaching MSMEs.

“However, the CSF is demand-driven and available to registered MSMEs that are unable to obtain formal credit. Unfortunately, there are no reliable statistics on how many of these enterprises there are. Hence, it is difficult to know whether the demand of unbankable MSMEs is being met by the CSF,” it said.

Processing loan applications by banks, whether covered by the CSF or under regular lending windows, is slow, the think tank said.

“Lack of staff (i.e., loan officers), voluminous documentary requirements, and stringent procedures are the common reasons,” it said.

Another challenge is the lack of reliable, high-quality, and cost-efficient credit information to evaluate loan proposals, it noted.

“Credit information is a key factor in assessing and managing risk. A credit bureau would be very helpful in providing information on MSMEs and is essential to creating an enabling environment for the sector,” the paper said.

To address such limitations, the ADBI said the program can be further improved by strengthening certain key features such as expanding capability enhancement training and seminars to improve the capacity of banks and cooperatives in evaluating loan proposals among others.

It concluded that the CSF program has provided support for MSMEs with a viable business plan to access formal credit without providing collateral.

“The much-needed credit provides them with an opportunity to grow, thus generating jobs and contributing to inclusive economic growth.